ECB Warns Bond Selloff Will Curb Euro Zone Growth

European Central Bank President Christine Lagarde stated in Bangkok that a global bond selloff is increasing borrowing costs in the euro zone. She noted that tightened financing conditions and rising long-term interest rates will curb economic growth and inflation more than previously projected, while making it harder for consumers to absorb higher fuel prices caused by the war in Iran.

The European Central Bank has raised interest rates twice in the last four months. A further hike is expected in December to bring the policy rate to 2.75%.

Other policymakers expressed a need for continued caution. Joachim Nagel indicated that further policy tightening may be necessary to continue the fight against inflation. Olli Rehn warned that the bank remains vigilant against second-round effects, where energy inflation begins to impact wages and other prices.